What should investors do with UltraTech Cement post Q3 results; buy, sell or hold?

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#Buzzing Stocks, UltraTech Cement

UltraTech Cement share price fell 2 percent amid profit booking in the early trade on January 18, a day after company reported its December quarter earnings.

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At 9:43 am, the scrip traded at Rs 7680.00 a piece on the BSE, down 2.39 percent, while the benchmark Sensex retreated 0.17 percent to 61,202.56.

Exceeding expectations, UltraTech Cement on January 17 reported a consolidated profit after tax (PAT) of Rs 1,708 crore for the quarter ended December 2021, up 7.8 percent against Rs 1,584 crore in the year-ago period. PAT during the previous quarter stood at Rs 1,314 crore.

Global Tech News Daily

The company’s consolidated net sales in the December quarter stood at Rs 12,710 crore, up 5 percent from Rs 12,144 crore in the year-ago period.

Consolidated revenue (including operating income) met expectations and was 6 percent higher at Rs 12,985 crore from Rs 12,254 crore in the December 2020 quarter and Rs 12,017 crore in the previous three-month period.

Global Tech News Daily

Operating income for the quarter was Rs 275 crore, up by 133 percent.

Here is what brokerages have to say about the stock and the company:

Credit Suisse

Research firm has kept outperform rating on the stock on the back of strong underlying sector dynamics on pricing & demand.

The firm has kept target at Rs 9,250 on the back of strong positive outlook on housing and infrastructure investment cycle.

It revised earnings by -20%/-9%/-6% for FY22/23/24 on cost impact.

Citi

Broking house has kept buy rating and raised the target price to Rs 9,100 from Rs 8,500.

The cost pressures are likely peaked in Q3 and pace of price acceleration should slow in FY23 given supply expectations.

Goldman Sachs

Goldman Sachs has maintained buy call on the stock and raised the target price to Rs 9,000 from Rs 8,800 as the company remains the top pick in the sector, given its capacity expansion plans.

The results were in-line with mixed near-term outlook; however structural thesis are intact.

It is a top pick in the sector on scale, pricing premium & rising green power share.

Jefferies

Brokerage house Jefferies has retained hold rating with a target at Rs 8,100. Its EBITDA misses on higher cost, while cement price hike is the key to regain lost ground.

The management has indicated that costs are likely to remain elevated in Q4. The cement prices have started improving in a few regions and expect price hikes in other regions as well in the next 2-3 months.

Jefferies has cut FY22-FY24 EBITDA estimates by 7-9% to reflect cost pressure.

CLSA

Research house CLSA has maintained buy call with a target at Rs 9,175 per share as it expect stock may outperform with likely price hikes in Q4 & strong demand and expect company to be a key beneficiary of a demand upcycle.

Its Q3 EBITDA was slightly above & costs likely to have peaked.

Company expects power costs to remain at current elevated levels in Q4 and reduction in spot prices to be reflected in FY23.

Prabhudas Lilladher

We continue to like UltraTech given its market leading position (20%+ market share), strong B/S (Net debt/EBITDA at 0.5x) and efficient operations.

However, high expectation with 2-year volume CAGR of 12%, EBITDA/t of Rs 1,300 and rich valuations of EV/EBITDA of 14.2x and P/E of 24.6x FY24e leaves limited upside with potential risk of earnings downgrade.

We downgrade stock to accumulate with revised target price of Rs 8,535 (earlier Rs 8,650) EV/EBITDA of 15.5x FY24e.

Sharekhan

UltraTech is expected to benefit from expected healthy cement demand over the long term, driven by its timely capacity expansion plans. The demand environment is expected to be strong from segments such as infrastructure, rural housing, and urban housing.

Easing of power and fuel costs along with expectation of price hikes is likely to maintain healthy operational profitability.

We believe the company’s capacity expansion coupled with de-leveraging of balance sheet over the next three years is expected to drive earnings over FY2022-FY2024. We continue to maintain our buy rating on the stock with a revised price target of Rs 9,200.

Motilal Oswal

Cement demand is expected to remain strong, led by the government’s thrust on Infrastructure development and recent improvement in housing demand. UltraTech Cement is in a strong position to gain market share, led by its strong distribution network.

Its capacity expansion plans and scope for improvement in utilization of existing capacities offers strong growth visibility.

We estimate consolidated EBITDA/adjusted PAT CAGR of 16%/21% over FY22-24E, driven by 9% volume CAGR, decline in energy costs, and lower interest expense.

We value UltraTech at 16x FY24E EV/EBITDA to arrive at our target price of Rs 9,080. We reiterate our buy rating.

At 09:22 hrs UltraTech Cement was quoting at Rs 7,718, down Rs 149.90, or 1.91 percent on the BSE.

The share touched a 52-week high of Rs 8,267 and a 52-week low Rs 5,261.80 on 08 November, 2021 and 01 February, 2021, respectively.

Currently, it is trading 6.64 percent below its 52-week high and 46.68 percent above its 52-week low.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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